 Managerial economics is a science that helps to explain how resources such as labor,
technology, land, and money, can be allocated efficiently, managerial economics focuses
on decisions individuals make.
 Fundamental Principles of Managerial Economics
1. Incremental Principle: Incremental principle states that a decision is profitable if
revenue increases more than costs; if costs reduce more than revenues; if increase in
some revenues is more than decrease in others; and if decrease in some costs is greater
than increase in others.
Refer: (https://www.dspmuranchi.ac.in//pdf/Blog/BBA-Sem.%20VI-Project%20Management-Unit%203Project%20Cash%20Flows-Incremental%20Principle.pdf)
2. Marginal Principle: It increase the level of an activity if its marginal benefit exceeds its
marginal cost, but reduce the level if the marginal cost exceeds the marginal benefit. If
possible, pick the level at which the marginal benefit equals the marginal cost.
Marginal means additional, marginal principle studies the effect of changes due to one
additional unit.
Marginal Utility - It is the additional utility derived from additional unit of consumption.
Marginal Production - It is the additional unit produced due to an additional unit of input.
Marginal Cost - The additional cost incurred due to an additional unit produced.
Marginal Revenue - The additional revenue derived from an additional unit sold.
Marginalism principle is used for taking various micro economical decisions such as, at what
price a product needs to be sold, how many units needs to be produced, what would be the
impact of cost and such other things.
3. Opportunity Cost Principle: Opportunity cost is a concept in Economics that is defined
as those values or benefits that are lost by a business, business owners or organisations
when they choose one option or an alternative option over another option, in the course
of making business decisions.
Refer:(https://byjus.com/commerce/opportunitycost/#:~:text=Opportunity%20cost%20is%20a
%20concept,course%20of%20making%20business%20decisions.)
4. Discounting Principle: If a decision affects costs and revenues in long-run, all those
costs and revenues must be discounted to present values before valid comparison of
alternatives is possible. This is essential because a rupee worth of money at a future date
is not worth a rupee today.
Discounting is the process of converting a value received in a future time period to an equivalent
value received immediately. For example, a dollar received 50 years from now may be valued less
than a dollar received today—discounting measures this relative value.
Refer:( https://sites.google.com/site/economicsbasics/discounting-principle)
5. Concept of Time Perspective Principle: The principle of time perspective states that
a decision should take into account both the short and long-run effects on revenue and
costs. It should maintain the right balance between the short-run and the long-run
perspectives.
Refer: (https://indiafreenotes.com/principle-of-time-perspective/)
6. Equi -Marginal Principle: Law of equi-marginal utility states that to maximize utility,
consumers way allocates their limited incomes among goods and services in such a way
that the marginal utilities per dollar (rupee) of expenditure on the last unit of each good
purchased will be equal.
Refer: (https://sites.google.com/site/economicsbasics/equi-marginal-principle)
 Supply is the amount of a certain good that a seller is willing and able to provide
to buyers.
Refer:(https://en.wikipedia.org/wiki/Supply_(economics)#:~:text=In%20economics%2C%20supp
ly%20is%20the,other%20scarce%20or%20valuable%20object.)
 Demand is an economic concept that relates to a consumer's desire to purchase
goods and services and willingness to pay a specific price for them. An increase in
the price of a good or service tends to decrease the quantity demanded.
 Market mechanism is a system of the market where the forces of demand and
supply determine the price and quantity of goods and services traded. The market
mechanism relies on the invisible hand to fix market malfunctions.
Refer:(https://www.studysmarter.us/explanations/microeconomics/marketefficiency/themarket
mechanism/#:~:text=The%20market%20mechanism%20is%20a,hand%20to%20fix%20market%
20malfunctions.)
 Theory of demand describes the way that changes in the quantity of a good or
service demanded by consumers affects its price in the market, The theory states
that the higher the price of a product is, all else equal, the less of it will be
demanded, inferring a downward sloping demand curve.
Refer:(https://www.investopedia.com/terms/d/demand_theory.asp#:~:text=Key%20Takeaways,
a%20downward%20sloping%20demand%20curve.)
 Consumer behavior is the study of how people make purchase decisions to
satisfy their needs, wants, or desires and how their emotional, mental, and
behavioral responses influence the buying decision.
Refer:( https://www.omniconvert.com/blog/consumer-behavior-in-marketing-patternstypessegmentation/#:~:text=Consumer%20behavior%20is%20the%20study%20of%20how%20p
eople%20make%20purchase,responses%20influence%20the%20buying%20decision.)
 Marketing cost refers to the expenses incurred by a business to promote and
advertise its products or services to potential customers. It includes various
expenses such as advertising, public relations, sales promotions, direct marketing,
and other marketing campaigns.
Refer:( https://www.wallstreetmojo.com/marketing-cost/#:~:text=return%20on%20investment.,Marketing%20Cost%20explained,marketing%2C%20and%20other%20marketing%20campaigns.
)
 Theory of the firm refers to the microeconomic approach devised in neoclassical
economics that every firm operates in order to make profits. Companies ascertain the
price and demand of the product in the market and make optimum allocation of
resources for increasing their net profits.
Refer:( https://en.wikipedia.org/wiki/Theory_of_the_firm)

Market structure in economics, refers to how different industries are classified
and differentiated based on their degree and nature of competition for goods and
services. It is based on the characteristics that influence the behavior and
outcomes of companies working in a specific market.
1. PERFECT COMPETITION: Perfect competition is an ideal type of market
structure where all producers and consumers have full and symmetric
information and no transaction costs. There are a large number of producers
and consumers competing with one another in this kind of environment.
2. MONOPOLISTIC COMPETITION: Monopolistic competition is a type of
market structure where many companies are present in an industry, and they
produce similar but differentiated products. None of the companies enjoy a
monopoly, and each company operates independently without regard to the
actions of other companies.
3. OLIGOPOLY: A state of limited competition, in which a market is shared by a
small number of producers or sellers.
4. MONOPOLY: when one company and its product dominate an entire industry
whereby there is little to no competition and consumers must purchase that
specific good or service from the one company.
Circular flow of income the circular flow means the unending flow of production of goods
and services, income, and expenditure in an economy. It shows the redistribution of income in a
circular manner between the production unit and households.
National income accounting it’s a government bookkeeping system that measures the
health of an economy, projected growth, economic activity, and development during a certain
period of time. It helps in assessing the performance of an economy and the flow of money in
an economy.
Refer:( https://corporatefinanceinstitute.com/resources/economics/national-incomeaccounting/)
National income determination refers to the study of the intersection between the
Aggregate Demand (AD) and Aggregate Supply (AS), such that the General Price Level (GPL) and
National Income (NY) are obtained. National Income is also measured in terms of real Gross
Domestic Product (GDP).
Refer:( https://www.economicstuitiononline.com.sg/economics-tuition-notes/economicsdefinition/economics-tuition-singapore/ad-as-national-income-determination)
Money and banking Refer:( https://www.vedantu.com/commerce/money-andbanking)
Employment Refer:( https://www.vedantu.com/commerce/workers-andemployment)
Interest is the cost of funds loaned to an entity by a lender. This cost is usually expressed
as a percentage of the principal on an annual basis. Interest can be calculated as simple
interest or compound interest, where compound interest results in a higher return to the
investor. Depending on the tax laws of the applicable government entity, interest expense
is tax deductible for a borrower.
Refer:( https://www.accountingtools.com/articles/interest)
Inflation a broad rise in the prices of goods and services across the economy over time.
Inflation is the aggregate level at which prices for goods and services are increasing. When
inflation occurs, it means that the purchasing power of consumers and businesses is declining,
unless they can increase their income by an offsetting amount. Inflation also reduces the value
of savings.
Economics of information Information economics or the economics of information is the
branch of microeconomics that studies how information and information systems affect an
economy and economic decisions.
Problem of adverse selection Adverse selection refers to a situation where sellers have
more information than buyers have, or vice versa, about some aspect of product quality,
although typically the more knowledgeable party is the seller. Adverse selection occurs when
asymmetric information is exploited.
Moral hazard problem refers to the risks that someone or something becomes more inclined
to take because they have reason to believe that an insurer will cover the costs of any damages.
The concept describes financial recklessness. It has its roots in the advent of private insurance
companies about 350 years ago.
For example, suppose a person pays insurance for their new phone. Morale hazard arises when the
model of their phone becomes outdated, and they no longer care about it. They are indifferent to their
phone getting damaged because their insurance would allow them to get a new one.
Market failure is the economic situation defined by an inefficient distribution of goods and
services in the free market.
There are two types of market failures: complete market failure occurs when the market does
not make a product at all. partial market failure occurs when the market does not supply
products in the quantity demanded or at the price consumers are willing to pay.
Externalities Consumption externalities are impacts on third parties generated by the
consumption of a good or service, which can be either negative or positive. There are four main
types of externalities: positive production, positive consumption, negative consumption, and
negative production.
Refer:( https://www.studysmarter.us/explanations/microeconomics/marketefficiency/externalities/#:~:text=Consumption%20externalities%20are%20impacts%20on,negati
ve%20consumption%2C%20and%20negative%20production.)
Public goods are commodities or services that benefit all members of society, and which are
often provided for free through public taxation.
Refer:( https://www.investopedia.com/terms/p/publicgood.asp#:~:text=Public%20goods%20are%20commodities%20or,paid%20for%20separately%2
0by%20individuals.)